[atlas:bill]

AN ACT Relating to changing requirements regarding state and local tax to provide for municipal gross receipts tax uniformity and fairness; amending RCW 82.32.060; adding a new chapter to Title 35 RCW; and providing effective dates.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. LEGISLATIVE FINDINGS AND INTENT. (1) The legislature finds that:

(a) Businesses in Washington are concerned about the potential multiple taxation that arises due to the various city gross receipts taxes and the lack of uniformity among city jurisdictions;

(b) The current system of city gross receipts taxes has a negative impact on Washington's business climate by creating complexity and inconsistencies for taxpayers;

(d) Local government services contribute to a healthy business climate; and

(e) Cities have and should retain the flexibility to tailor their tax structures to meet unique local needs, but that flexibility must be balanced with predictability and ease of administration of city gross receipts taxes.

(2) Therefore, it is the intent of the legislature to:

(a) Require cities that impose a gross receipts tax to adopt a model ordinance that creates a more uniform system of city gross receipts taxes;

(b) Eliminate any potential for multiple taxation of the same gross income;

(c) Make city gross receipts taxes simpler, more predictable, and easier to administer, while allowing for some continued local control and flexibility for cities.

NEW SECTION. Sec. 2. MUNICIPAL GROSS RECEIPTS TAX‑-LIMITED SCOPE. Sections 3 through 15 of this act do not apply to gross receipts taxes on business activities that, prior to January 1, 2002, have been historically or traditionally taxed as a utility business for municipal tax purposes such as:

(1) A light and power business or a natural gas distribution business, as defined in RCW 82.16.010;

(2) A telephone business, as defined in RCW 82.04.065;

(3) Cable television services;

(4) Sewer or water services;

(5) Drainage services;

(6) Solid waste services; or

(7) Steam services.

NEW SECTION. Sec. 3. MUNICIPAL GROSS RECEIPTS TAX‑-DEFINITIONS. The definitions in this section apply throughout this chapter unless the context clearly requires otherwise:

(1) "Business" has the same meaning as that provided in RCW 82.04.140.

(2) "City" means a city, town, or code city.

(3) "Business and occupation tax" or "gross receipts tax" means a tax which is imposed on or measured by the value of products, the gross income of the business, or the gross proceeds of sales, as the case may be and which is also not, pursuant to law or custom, separately stated from the sales price. As used throughout this chapter, the terms "value of products," "gross income of the business," and "gross proceeds of sales" have the same meaning as those provided in chapter 82.04 RCW.

(4) "Local jurisdiction" means any city, town, code city, county, municipal district or corporation, political subdivision, Indian reservation, or federal area located in the state of Washington.

NEW SECTION. Sec. 4. MUNICIPAL GROSS RECEIPTS TAX‑-MODEL ORDINANCE. (1)(a) The association of Washington cities shall form a model ordinance development committee made up of a representative sampling of large, medium, and small cities that currently impose a gross receipts tax. By September 1, 2003, this committee shall develop and adopt a model ordinance regarding municipal gross receipts taxes in accordance with the provisions of this chapter. The committee shall develop the model ordinance and any subsequent amendments using a process that includes substantial input from business stakeholders and other members of the public. Input shall be solicited from statewide business associations and from local chambers of commerce and downtown business associations in cities that levy a gross receipts tax.

(b) The municipal research and services center shall post the officially adopted version of the model ordinance and a summary of any stakeholder input on its internet web site and shall have paper copies available upon request. Additionally, a city that imposes a gross receipts tax must make copies of its full and complete gross receipts tax ordinance available in both electronic and paper form. The model ordinance and accompanying information shall also be made available to the department of revenue taxpayer information services division and the department of licensing master license program.

(c) The definitions and tax classifications provided in the model ordinance may not be amended more frequently than once every four years. However, the model ordinance may be amended at any time to comply with changes in state law. Any amendment made to the model ordinance under this subsection (1)(c) shall be posted on the internet web site of the municipal research and services center at least one hundred twenty days prior to the effective date of the amendment. In addition, any amendment to a mandatory provision of the model ordinance must be uniformly adopted with the same effective date by all cities imposing a gross receipts tax.

(2) The model ordinance must contain, at a minimum, the following, mandatory provisions:

(a) The following core definitions from the state business and occupation tax: RCW 82.04.030 ("Person," "company"); RCW 82.04.040 ("Sale," "casual or isolated sale"); RCW 82.04.050 ("Sale at retail," "retail sale"); RCW 82.04.060 ("Sale at wholesale," "wholesale sale"); RCW 82.04.070 ("Gross proceeds of sales"); RCW 82.04.080 ("Gross income of the business"); RCW 82.04.090 ("Value proceeding or accruing"); RCW 82.04.100 ("Extractor"); RCW 82.04.110 ("Manufacturer"); RCW 82.04.120 ("To manufacture"); RCW 82.04.130 ("Commercial or industrial use"); RCW 82.04.140 ("Business"); RCW 82.04.150 ("Engaging in business"); and RCW 82.04.190 ("Consumer"). The incorporation of these core definitions in the model ordinance shall be construed to include, as an extension of each definition, any state level determination, regulation, interpretation, or court opinion pertaining to any one of these definitions. In addition, if the model ordinance or an individual city uses a classification, exemption, deduction or credit substantially similar to one set forth in the state's gross receipts tax system, the definitions used for the classification, exemption, deduction, or credit shall be identical to those provided in the state's gross receipts business and occupation tax system. However, this subsection (2) shall not be construed to limit any individual city's flexibility to establish its own classifications or rate structures for gross receipts tax purposes subject to the provisions of RCW 35.21.710 nor shall it be construed to reduce, limit, or eliminate a city's ability to continue to tax an activity at the rate established for an activity prior to January 1, 2002, pursuant to either a gross receipts tax or utility tax;

(b) The system of credits contained in section 6 of this act and a form for such use;

(c) A uniform, minimum small business tax exemption of at least the equivalent of twenty‑five thousand dollars in gross income. A city may elect to deviate from this requirement by creating a higher threshold, but it shall not deviate lower than the level required in this subsection (2)(c). A city with a small business tax exemption or threshold in excess of that provided in this subsection (2)(c) prior to January 1, 2001, shall retain its current threshold;

(d) Tax reporting frequencies that meet the requirements of section 8 of this act;

(e) Penalty and interest provisions that meet the requirements of sections 9 and 10 of this act;

(f) Claim periods that meet the requirements of section 11 of this act;

(g) Refund provisions that meet the requirements of section 12 of this act.

(3) Except for the system of credits developed to address multiple taxation under subsection (2)(b) of this section, the model ordinance may adopt its own provisions for tax exemptions, tax credits, and tax deductions.

(4) In drafting the mandatory definitions required under subsection (2)(a) of this section, the committee established in subsection (1)(a) of this section shall, by December 1, 2003, develop recommendations to the legislature regarding possible amendments to the state's gross receipts tax definitions to make them more clear, concise, understandable, and easier to administer as part of the model ordinance.

NEW SECTION. Sec. 5. MUNICIPAL GROSS RECEIPTS TAX‑-MODEL ORDINANCE ADOPTION REQUIRED. (1) A city with a population of fifty thousand or more and imposing a gross receipts tax must adopt and implement, at a minimum, the mandatory provisions of the model ordinance provided in section 4 of this act by January 1, 2004. However, if a definition required to be adopted as a mandatory provision of the model ordinance under section 4(2)(a) of this act would cause a city with a population of fifty thousand or more to lose more than ten percent of the total gross receipts taxes received by that city, the city may delay the adoption of that particular definition until January 1, 2005.

(2) A city with a population of less than fifty thousand and imposing a gross receipts tax must adopt and implement, at a minimum, the mandatory provisions of the model ordinance provided in section 4 of this act by January 1, 2005. However, if a definition required to be adopted as a mandatory provision of the model ordinance under section 4(2)(a) of this act would cause a city with a population of less than fifty thousand to lose more than ten percent of the total gross receipts taxes received by that city, the city may delay the adoption of that particular definition until January 1, 2006.

(3) While it is the intent of the legislature to allow some deviation from the nonmandatory provisions of the model ordinance, cities are encouraged to deviate as little as possible from the nonmandatory portions of the model ordinance to maintain the highest degree of uniformity among the cities imposing a gross receipts tax. If a city chooses to deviate from the nonmandatory provisions of the model ordinance, the deviation should be noted along with an explanatory statement regarding the deviation. Both the deviation and the explanatory statement shall then be placed in a centralized depository such as the municipal research and services center to provide taxpayers with quick access to all deviations in both paper and electronic form.

NEW SECTION. Sec. 6. MUNICIPAL GROSS RECEIPTS TAX‑-MULTIPLE TAXATION‑-CREDIT SYSTEM. (1) It is the intent of the legislature in providing the system of credits in subsections (3)(a) and (b) of this section to eliminate any circumstance that would result in any city or multiple cities imposing a gross receipts business and occupation tax on greater than one hundred percent of the gross income of the business.

(2)(a) Persons who engage in business activities that are within the purview of more than one classification of a gross receipts business and occupation tax shall be taxable under each applicable classification.

(b) Notwithstanding anything to the contrary in this section, if imposition of the tax would place an undue burden upon interstate commerce or violate other constitutional requirements, a taxpayer shall be allowed a credit to the extent necessary to preserve the validity of the tax.

(3)(a) Every person engaged in manufacturing activities is allowed a credit against the measure of tax of any manufacturing gross receipts tax imposed by a local jurisdiction for any portion of the measure of tax which has been previously subjected to a local jurisdiction gross receipts tax on either extracting or previously performed manufacturing activities.

(b) Every person engaged in making retail or wholesale sales is allowed a credit against the measure of tax of any retailing or wholesaling gross receipts tax imposed by a local jurisdiction for any portion of the measure of tax which has been previously subjected to a local jurisdiction gross receipts tax on either extracting or manufacturing activities.

(c) The model ordinance provided for in section 4 of this act shall be drafted to address the issue of multiple taxation for those tax classifications that are in addition to those enumerated in (a) and (b) of this subsection. The objective of any such provisions shall be to eliminate multiple taxation of the same income by two or more cities through the use of credits against the measure of tax.

NEW SECTION. Sec. 7. MUNICIPAL GROSS RECEIPTS TAX‑-NEXUS. A city may not impose a gross receipts tax on a person unless that person has nexus with the city. For the purposes of this section, the term "nexus" means business activities conducted by a person sufficient to subject that person to the taxing jurisdiction of a city under the standards established for interstate commerce under the commerce clause of the United States Constitution.

NEW SECTION. Sec. 8. MUNICIPAL GROSS RECEIPTS TAX‑-REPORTING FREQUENCY. A city that imposes a gross receipts tax shall allow reporting and payment of tax on a monthly, quarterly, or annual basis. The frequency for any particular person may be assigned at the discretion of the city, except that monthly reporting may be assigned only if it can be demonstrated that the taxpayer is remitting excise tax to the state on a monthly basis. For persons assigned a monthly frequency, payment is due within the same time period provided for monthly taxpayers under RCW 82.32.045(1). For persons assigned a quarterly or annual frequency, payment is due within the same time period as provided for quarterly or annual frequency under RCW 82.32.045(2).

NEW SECTION. Sec. 9. MUNICIPAL GROSS RECEIPTS TAX‑-PENALTIES AND INTEREST. (1) A city that imposes a gross receipts tax shall compute interest charged a taxpayer on an underpaid tax or penalty in accordance with RCW 82.32.050.

(2) A city that imposes a gross receipts tax shall compute interest paid on refunds or credits of amounts paid or other recovery allowed a taxpayer in accordance with RCW 82.32.060.

NEW SECTION. Sec. 10. MUNICIPAL BUSINESS AND OCCUPATION TAX‑-PENALTIES. A city that imposes a gross receipts tax shall provide for the imposition of penalties as follows:

(1) If payment of any tax due on a return to be filed by a taxpayer is not received by the city by the due date, the taxpayer shall be charged a penalty equivalent to that provided in RCW 82.32.090(1).

(2) If payment of any tax assessed by the city is not received by the city by the due date specified in the notice, or any extension, the city shall add a penalty equivalent to that provided in RCW 82.32.090(2).

(3) If a warrant is issued by the city for the collection of taxes, increases, and penalties, a penalty equivalent to that provided in RCW 82.32.090(3) shall be added to it.

(4) If the city, code city, or town finds that all or any part of a deficiency resulted from the disregard of specific written instructions as to reporting or tax liabilities, the city shall add a penalty equivalent to that provided in RCW 82.32.090(4). A taxpayer disregards specific written instructions when the city has informed the taxpayer in writing of the taxpayer's tax obligations and the taxpayer fails to act in accordance with those instructions unless the city has not issued final instructions because the matter is under appeal. The city shall not assess the penalty under this section upon any taxpayer who has made a good faith effort to comply with the specific written instructions provided by the city to that taxpayer. Specific written instructions may be given as a part of a tax assessment, audit, determination, or closing agreement, provided that specific written instructions apply only to the taxpayer addressed or referenced on the documents. Any specific written instructions by the city shall be clearly identified as such and shall inform the taxpayer that failure to follow the instructions may subject the taxpayer to the penalties imposed by this subsection.

(5) If the city finds that all or any part of the deficiency resulted from an intent to evade the tax, a further penalty equivalent to that provided in RCW 82.32.090(5) shall be added.

(6) The aggregate of penalties imposed under subsections (1), (2), and (3) of this section shall not exceed the limit for penalties provided in RCW 82.32.090(6). This subsection does not prohibit or restrict the application of other penalties authorized by law.

(7) The city may not impose both the evasion penalty and the penalty for disregarding specific written instructions on the same tax found to be due.

(8) For the purposes of this section, "return" means any document a person is required by the city to file to satisfy or establish a tax obligation that is administered by the city and that has a due date defined by ordinance.

NEW SECTION. Sec. 11. MUNICIPAL GROSS RECEIPTS TAX‑-CLAIM PERIOD. The provisions relating to the time period allowed for an assessment or correction of an assessment for additional taxes, penalties, or interest shall be substantially identical to those provided in RCW 82.32.050(3).

NEW SECTION. Sec. 12. MUNICIPAL GROSS RECEIPTS TAX‑-REFUND PERIOD. The provisions relating to the time period allowed for a refund of taxes paid shall be substantially identical to those provided in RCW 82.32.060 (1) and (2).

NEW SECTION. Sec. 13. MUNICIPAL GROSS RECEIPTS TAX‑-APPORTIONMENT PROVISIONS. (1) For the purposes of apportioning or allocating gross income of the business for city gross receipts taxes:

(a) The total tax measure apportioned or allocated to all applicable local jurisdictions shall not exceed the total tax measure computed by the state for the purpose of state gross receipts taxation.

(b) All state and federal constitutional provisions and laws pertaining to the establishment of due process and commerce clause protections for the taxation of interstate commerce are duly applicable to the establishment of due process and commerce clause protections for the taxation of intrastate commerce.

(2) The following specific guidelines shall be applied by any city that imposes a gross receipts tax:

(a) For the purposes of imposing a gross receipts tax on extracting, manufacturing, or processing for hire activities, the activities are subject to tax in the local jurisdiction where the activities occur. If the activities occur in more than one local jurisdiction, the activities are consistently, equitably, and reasonably apportioned between or among those local jurisdictions even though the taxpayer may not have an office or other permanent place of business in each jurisdiction.

(b) For the purposes of imposing a gross receipts tax on retail sales, all sales are subject to tax in the local jurisdiction where the sales occur. For the purposes of determining where a retail sale occurs under this subsection (2)(b), the methods provided in RCW 82.14.020 (1) through (5) for determining where a retail sale occurs apply.

(c) For the purposes of imposing a gross receipts tax on wholesale sales, all sales are subject to tax in the local jurisdiction where the sales occur. For the purposes of determining where a wholesale sale occurs under this subsection, the methods provided in RCW 82.14.020 (1) through (5) for determining where a retail sale occurs apply as if the wholesale sale was a retail sale.

(d) For the purposes of imposing a gross receipts tax on any person rendering services, other than services defined as a retail sale under RCW 82.04.050, the services are subject to tax in the local jurisdiction where the services were primarily performed. If the person rendering services performs substantial service activities in more than one local jurisdiction, the person shall apportion to each local jurisdiction that portion of the total gross income that is derived from services rendered in each local jurisdiction. Where apportionment cannot be accurately made by separate accounting methods, the person shall apportion to each local jurisdiction that proportion of the total gross income which is derived from services which the cost of performing the services within a local jurisdiction bears to the total cost of performing the services in all local jurisdictions. The city shall apportion the gross receipts derived from services even though the taxpayer may not have an office or other permanent place of business in each jurisdiction where it performs the services.

(e) Under no circumstances may a business apportion or allocate gross receipts to a jurisdiction in which it has no nexus for tax purposes.

(f) Upon the effective date of this section, the model ordinance developed under section 4 of this act shall not contain any provisions relating to the apportionment or allocation of gross income.

NEW SECTION. Sec. 14. MUNICIPAL GROSS RECEIPTS TAX‑-APPORTIONMENT PROVISIONS STUDY. The department of revenue shall work with the association of Washington cities and the business community to study the possible impacts of section 13 of this act regarding the issues of apportionment and allocation of income as they relate to cities, businesses engaged in business solely within the boundaries of a single, local jurisdiction, and businesses engaged in business within multiple local jurisdictions. In conducting the study, the department shall perform an independent analysis of the specific revenue impacts to cities, if any, which may occur when section 13 of this act is implemented. If the department determines that revenue impacts are anticipated as a result of the implementation of section 13 of this act, it shall, on January 1, 2004, make recommendations to the governor and the fiscal committees of the legislature regarding actions the legislature could take to mitigate the financial impact. In addition to methods offered by the department to financially mitigate any impact, the recommendations may also include the substantive alteration or repeal of section 13 of this act.

NEW SECTION. Sec. 15. MUNICIPAL GROSS RECEIPTS TAX‑-IMPLEMENTATION BY CITIES‑-CONTINGENT AUTHORITY. A city that has not complied with the model ordinance adoption requirements of section 5 of this act may not impose a gross receipts tax on business activities subject to the mandatory provisions of the model ordinance.

NEW SECTION. Sec. 16. MUNICIPAL GROSS RECEIPTS TAX‑-PREEMPTION OF GROSS RECEIPTS TAXATION OF INTELLECTUAL PROPERTY. (1) A city shall not impose a gross receipts tax upon any intellectual property creating activity. However, nothing in this section shall be construed to prohibit a city from imposing a gross receipts tax on the sale of tangible personal property or services that include the benefits from intellectual property creating activities.

(2) For the purposes of this section, "intellectual property creating activity" means research, development, authorship, creation, or general or specific inventive activity without regard to whether the intellectual property creating activity results in the creation of patents, trademarks, trade secrets, matter subject to copyright, or any other intellectual property.

Sec. 17. RCW 82.32.060 and 1999 c 358 s 13 are each amended to read as follows:

(1) If, upon receipt of an application by a taxpayer for a refund or for an audit of the taxpayer's records, or upon an examination of the returns or records of any taxpayer, it is determined by the department that within the statutory period for assessment of taxes, penalties, or interest prescribed by RCW 82.32.050 any amount of tax, penalty, or interest has been paid in excess of that properly due, the excess amount paid within, or attributable to, such period shall be credited to the taxpayer's account or shall be refunded to the taxpayer, at the taxpayer's option. Except as provided in subsections (2) and (3) of this section, no refund or credit shall be made for taxes, penalties, or interest paid more than four years prior to the beginning of the calendar year in which the refund application is made or examination of records is completed.

(2) The execution of a written waiver under RCW 82.32.050 or 82.32.100 shall extend the time for making a refund or credit of any taxes paid during, or attributable to, the years covered by the waiver if, prior to the expiration of the waiver period, an application for refund of such taxes is made by the taxpayer or the department discovers a refund or credit is due.

(3) Notwithstanding the foregoing limitations there shall be refunded or credited to taxpayers engaged in the performance of United States government contracts or subcontracts the amount of any tax paid, measured by that portion of the amounts received from the United States, which the taxpayer is required by contract or applicable federal statute to refund or credit to the United States, if claim for such refund is filed by the taxpayer with the department within one year of the date that the amount of the refund or credit due to the United States is finally determined and filed within four years of the date on which the tax was paid: PROVIDED, That no interest shall be allowed on such refund.

(4) Any such refunds shall be made by means of vouchers approved by the department and by the issuance of state warrants drawn upon and payable from such funds as the legislature may provide. However, taxpayers who are required to pay taxes by electronic funds transfer under RCW 82.32.080 shall have any refunds paid by electronic funds transfer.

(5) Any judgment for which a recovery is granted by any court of competent jurisdiction, not appealed from, for tax, penalties, and interest which were paid by the taxpayer, and costs, in a suit by any taxpayer shall be paid in the same manner, as provided in subsection (4) of this section, upon the filing with the department of a certified copy of the order or judgment of the court.

(a) Interest at the rate of three percent per annum shall be allowed by the department and by any court on the amount of any refund, credit, or other recovery allowed to a taxpayer for taxes, penalties, or interest paid by the taxpayer before January 1, 1992. This rate of interest shall apply for all interest allowed through December 31, 1998. Interest allowed after December 31, 1998, shall be computed at the rate as computed under RCW 82.32.050(2). The rate so computed shall be adjusted on the first day of January of each year for use in computing interest for that calendar year.

(b) For refunds or credits of amounts paid or other recovery allowed to a taxpayer after December 31, 1991, the rate of interest shall be the rate as computed for assessments under RCW 82.32.050(2) less one percent. This rate of interest shall apply for all interest allowed through December 31, 1998. Interest allowed after December 31, 1998, shall be computed at the rate as computed under RCW 82.32.050(2). The rate so computed shall be adjusted on the first day of January of each year for use in computing interest for that calendar year.

(6)(a) Interest allowed on a credit notice or refund issued after July 1, 2002, shall be computed from the last day of each calendar year containing the overpayment, and the last day of the final month included in a credit notice or refund if not the end of a calendar year.

(b) The department's credit notices shall include any applicable interest. Interest allowed with a credit notice shall accrue up to the date the taxpayer could reasonably be expected to use the credit notice, as defined by the department's rules.

(c) If a credit notice is converted to a refund, interest shall be recomputed to the date the refund is issued, but not to exceed the amount of interest that would have been allowed with the credit notice.

NEW SECTION. Sec. 18. CAPTIONS. Captions used in this act are not any part of the law.

NEW SECTION. Sec. 19. CODIFICATION. Sections 1 through 16, 18, and 20 of this act constitute a new chapter in Title 35 RCW.

NEW SECTION. Sec. 20. EFFECTIVE DATES. (1) Section 13 of this act takes effect January 1, 2005.

(2) Section 17 of this act takes effect July 1, 2002.